Saturday, June 23, 2012

Strategies for Renewing Leases in Commercial and Retail Property

man shopping in fruit shop
Renew good leases early

When it comes to managing and leasing commercial or retail property, you really do need to keep on top of the lease renewal situations coming up or expected.  Every lease document with an ‘option’ to renew will have strict time conditions that apply to the renewal process.  Here are some tips from our Leasing Newsletter for Agents.

There is nothing wrong with negotiating early when it comes to lease renewals.  It is simply a matter of negotiation and agreement.  The property manager can provide momentum to the situation.

Before you start, it is very wise to review all lease documents as they apply to the tenancy mix so that you can understand the critical dates as they apply to lease renewal.  There will be certain actions and requirements if the lease renewal is to be activated.  The landlord and the tenant will have a role to play in the implementation of those critical dates.  The property manager will be the facilitator of the necessary actions and responses.

The leases that are coming to an end will have no ability for renewal.  Either way, decisions need to be made regards the relative tenant and their placement in the property.  If you have a desirable tenant in occupancy in your property and their lease is coming to an end, it may be strategically wise to consider a new lease with the tenant.  Good tenants are hard to find and should be retained where they fit within the tenancy mix for the longer term.

Here are some other factors to consider in the lease renewal process:

  1. Always read the relative lease comprehensively before any action is taken towards the renewal.  As part of that process, take special note of the critical dates and the actions required of each party.  Look for special requirements of notices and agreements to be served between each party to the lease.
  2. Market rents may be the basis of the rental to be used in the lease renewal.  You will therefore need some good market rental evidence applicable to the type of property and the premises.  In gathering the information, be aware of the all comparable rental differences before you apply those rents to your negotiations.  
  3. Tenant mix considerations will come into the lease renewal.  Look at the overall property and the relationships between adjacent tenancies.  Given that the subject tenancy will be renewing in the same location, it is best to identify any challenges or weaknesses in the tenancy mix surrounding it as part of the renewal process.
  4. Rights of option will be detailed in the lease and on that basis should be understood.  It is wise to act early when it comes to lease renewal situations.  You then have time to deal with any disagreements or protracted negotiations.
  5. Anchor tenants may have some relevance to the lease renewal strategy within your property.  Some specialty tenants may not want to renew their lease until they know that the anchor tenant will be staying in the property for the longer term.
  6. Competition properties are a source of alternative tenants should you require new prospects to fill upcoming vacancies.  Always be on the lookout for new potential tenants.  Check out the competing properties frequently and talk to the tenants in those locations where possible.
  7. Renovations and relocation may be a sensible strategy as part of the lease renewal.  The terms and conditions of the particular leases will have relevance to both of the processes, but it is wise to ask questions about how the renewed tenancy will be upgraded or renovated for the ongoing new lease term.  When it comes to retail property this is quite important in maintaining property presentation.

The secret to successfully renewing leases is really based on early action and preparation.  Landlords, tenants, and property managers all have a role to play in successfully negotiating a renewal of the lease.  It is all a matter of strategy.

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